On April 26, 2018, firm Conservatorship and Trust Litigation Partner, Yasha Bronshteyn, was fortunate to attend the Ventura County Bar Association – Probate and Estate Planning Section annual program with Ventura County Presiding Probate Judge Glen M. Resier regarding the state of the Probate Court, recent developments, changes and general concerns. Judge Reiser served as Ventura Count’y only probate/trust/conservatorship judge between 2000-2004 and more recently from 2010 into 2018.
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Recent Developments from Appellate Level:
Doolittle v. Exchange Bank, 241 Cal.App.4th 529 (2015)
Trustee filed petition for instructions, seeking order confirming its authority to use funds in trust estate to defend against beneficiary’s two actions contesting settlor’s estate plan. Beneficiary filed her own petition for instructions, arguing that trustee was prohibited from defending against either action until they were resolved on their merits. Superior Court granted Trustee’s petition and denied Beneficiary’s. Beneficiary appealed.
Court of Appeal affirms, held that:  directive ordering trustee to defend against contests at the expense of the trust was not an element of trust’s nocontest clause subject to prohibition against enforcement;  trustee could defend against beneficiary’s contests at the expense of the trust prior to determination of the merits of the contests; and  trust instruction documents were intended to remain in effect after settlor’s death and thus were enforceable as part of trust.
Susan Doolittle, Beneficiary, contends the provision of the amendment that authorizes the expenditure of Trust Funds to defend against the actions is, in effect, a no-contest clause that under current provisions of the Probate Code may not be enforced without a determination that her challenges lack merit and were brought without probable cause and, in all events, may not be enforced until the validity of the amendment containing the authorization has been adjudicated.
In the 2005 Trust Instrument (final form of the trust), Trustor declared that various powers belonged to her as trustee and to any successor trustee, including the power to litigate and employ and reasonably compensate attorneys. Under the “No Contest Provisions”, the trust instrument included the following: “The Trustee is hereby directed to defend, at the expense of any trust estate governed by this Agreement, any contest or other attack of any nature on this Agreement, on any of its provisions and any amendments hereto, and on Trustor’s Will, an attack of any nature on Trustor’s estate planning and the inter vivos disposition, or disposition at death, of her assets and estate.”
As to the expenses of the contest to the Trust, the Trust provides: “if the Trustee should be unsuccessful in defending any matter described in that Section and does not settle such action and if, for any reason, the gifts to and interests of the contestant under this Agreement and/or Trustor’s Will are not forfeited, all of the costs of such defense shall be charged against the gifts to and interests of such contestant under this Agreement and/or Trustor’s Will, and all gifts to and interests of the contestant under this Agreement and/or Trustor’s Will shall be reduced on a dollar-for-dollar basis by the aggregate net value, as determined by the Trustee, of all real and personal property passing or distributable to or for the benefit of the contestant as a result of such matter or action, including, without limitation, assets of the trust estate or Trustor’s probate estate, insurance proceeds, employee benefits and deferred compensation.”
In May 2014, Susan, filed an action against Juan for financial elder abuse, charging him with unduly influencing and fraudulent inducing testator to executed the 2004 and 2005 trust instruments and seeking for a determination that they are invalid. Susan also petitioned to the Court for a determination that Testator lacked testamentary capacity when she executed the 2004 and 2005 trust documents.
Successor Trustee, Exchange Bank, petitioned the Court for instructions, citing the 2005 trust that imposes a duty to defend at the trust’s expense against any contest or other attack on Testator’s estate plan, Exchange Bank requested an order confirming its authority to use funds in the trust to retain counsel and defend against the two actions. Susan filed her own petition arguing the provisions are in effect a no-contest clause that cannot be enforced unless and until the court determines her claims lack merit and were brought without probable cause.
ISSUE ONE for COURT: NO CONTEST CLAUSE
Unless a trust provides otherwise, a trustee is bound to deal impartially with all beneficiaries. (Prob. Code Section 16000, 16003). “Hence, when a dispute arises as to who is the rightful beneficiary under a trust, involving no attack upon the validity or assets of the trust itself, the trustee ordinarily must remain impartial, and may not use trust assets to defend the claim of one party against the other.” In Whittlesey v. Aiello (2002) 104 Cal.App.4th 1221, 128 Cal.Rptr.2d 742, the court rejected a request for attorney fees from an attorney who represented the trustee, who was also a beneficiary, in a challenge to the validity of a trust amendment that changed the beneficiaries of the trust. The court held that there was no basis for the recovery of expenses out of the trust assets because the dispute was between the competing beneficiaries and did not stand to benefit the trust itself. (Id. at p. 1230, 128 Cal.Rptr.2d 742.). The decision and reasoning of Whittlesey were approved and followed in Terry v. Conlan (2005) 131 Cal.App.4th 1445, 33 Cal.Rptr.3d 603 under similar circumstances.
The trust agreements in Whittlesey and Terry did not contain an explicit directive to the trustee to defend claims challenging the validity of the amendment at the trust’s expense, as does the trust instrument in the present case.
The question is not whether that directive is part of the no-contest clause, but whether the California statute prohibits enforcement of this directive without a determination that Susan’s claims have been asserted without probable cause. Under the governing Probate Code provisions, the determination of this issue turns on whether the defense directive “penalizes” Susan within the meaning of section 21310, subdivision (c).
The fact that the adverse parties in interest are not similarly burdened is not a penalty imposed on Susan but an unavoidable consequence of the situation; if anything, it is a benefit to the other parties. If the rule were otherwise and the beneficiaries named in the amendment were unable to assume the costs of defense, there would be no means to defend implementation of the trustor’s intentions in amending the trust even if the challenger’s attack on the amendment were entirely unfounded.
In summary, the Court agrees with the trial court’s conclusion that the defense directive is not an element of the no-contest clause.
ISSUE TWO for COURT: DEFENSE AGAINST CONTESTS PRIOR TO DETERMINATION OF MERITS
“On acceptance of the trust, the trustee has a duty to administer the trust according to the trust instrument and, except to the extent the trust instrument provides otherwise, according to this division.” (§ 16000.) “The grant of a power to a trustee, whether by the trust instrument, by statute, or by the court, does not in itself require or permit the exercise of the power. The exercise of a power by a trustee is subject to the trustee’s fiduciary duties.” (§ 16202.) These powers and corresponding duties of the trustee remain in effect until the trust is terminated.
The power to defend against contests remains in effect until the trust, or as in this case the trust amendment, is judicially invalidated or otherwise terminated.Susan made no attempt to establish that she is likely to prevail to the validity of the trust amendment or that the balance of equities favors denying trustee the authority to defend her actions at the expense of the trust. On the other hand, Trustee presented substantial evidence negating the allegations of capacity and undue influence. Accordingly, the probate court did not abuse its discretion in authorizing the trustee to defend the actions at the trust’s expense.
ISSUE THREE for COURT: THE 2005 INSTRUCTIONS AS PART OF THE 2005 TRUST
While the 2005 trust document authorizes the trustee to defend Susan’s challenge at the expense of the trust, the 2005 instructions contain the additional authorization to pay the trust’s attorney and other trust representatives “at his or her regular, usual and customary rate for all time expended.”
The 2005 trust provides that the trustor shall have the right to “modify, alter and amend any of the provisions, terms or conditions” of the trust “by an instrument signed by her and delivered to the trustee.” Under this provision, any instrument that manifests an intent to amend the trust will be enforceable as an amendment to the trust. (Cook v. Cook (2009) 177 Cal.App.4th 1436, 1442, 99 Cal.Rptr.3d 913 [amendment that satisfies procedural requirement under the terms of the trust and “clearly manifest[s]” trustor’s intent to amend is enforceable.].)
Susan position was that the language used in the instructions does not manifest an intent to amend the terms of the trust. The Court of Appeals disagrees. The instructions were signed contemporaneously with the execution of the 2005 trust instrument and amplify the defense directive in the trust amendment. Assuming the validity of the amendment, the provisions of the 2005 trust, including the defense directive and fee shifting provision, evidence a clear intent to discourage and forcefully oppose any challenges to the trust amendment. There is no reason to believe that the instruction to compensate at their regular rates all representatives for time spent in defense of the amendment was intended to terminate upon Testator’s death. Testator obviously anticipated the possibility of a challenge after her death and there is no logical reason why she would have wanted her representatives to be compensated less generously for defending a contest after her death than for a contest before her death. Accordingly, we find no error in the court’s conclusion that the 2005 instructions are enforceable as part of the 2005 trust.
Trial Court’s orders are affirmed.
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